Effective leaders need to manage the logical consistency of change in an organization

Planned change, organization development, and change management are truly “hot topics” in management today. Most best selling business books for academics and practitioners are related to change. In addition, the State of California has just completed the California Performance Review calling for a massive restructuring of the state government. Professor Worley has assembled a group of organization change practitioners and researchers to comment on the state-of-the-art in managing change in a series of articles over the next few issues of the Graziadio Business Review.

Scott Sherman, PhD, will address the key issues on cultural change.

Chris Worley, PhD, will address a number of practical, powerful, but often ignored principles in managing change.

Miriam Lacey, PhD, will address the individual dimensions of change.

Ann Feyerherm, PhD, and Terri Egan, PhD, will describe an important and recent innovation in large-scale change that focuses on an organization’s strengths.

Ann Feyerherm, PhD, and Chris Worley, PhD, will discuss the emerging practice of managing change in international contexts.

In the first article in this series, Dr. W. Scott Sherman addresses the issues involved in managing strategic change and understanding resistance to change.

The Associated Press

Updated: 6:41 p.m. ET Nov. 17, 2004

NEW YORK – A resurgent Kmart, home of the blue light special, is buying the once-dominant Sears department store chain in a surprising $11 billion gamble it is counting on to help both better compete with Wal-Mart and other big-box retailers. … [Kmart Holding Company Chairman Edward] Lampert and Sears chairman and CEO Alan Lacy, in announcing the deal on Wednesday, promised up to $500 million a year in savings within three years from store conversions, back-office job cuts, more efficient buying of goods and possible store closings. (http://www.msnbc.msn.com/id/6509683/)

Not many organization changes can rival the proposed Sears and Kmart marriage in sheer size. One question about this marriage of retail giants is how much resistance to changes will this merger generate? Many 21st century businesses experience constant pressure to adapt to environmental changes as their world is reformed by increasing globalization and technological pressures that create high-velocity markets. However, four out of five companies that have attempted to change business strategies have failed to meet the new strategy’s objectives.[1] Employees resisting change may make implementing a strategic change difficult or impossible.[2]

Sears Tower Photo: Alice Wycklendt

This article suggests that managers can better manage resistance to change if they examine the logical consistency of the fit between changes in strategy and organization. Addressing logical consistency will help address both apparent logical inconsistencies between strategy and organization and ensure that no real inconsistencies prosper. Managers armed with a complete understanding of the need for change and knowing the type of change required can best communicate with stakeholders, including employees. Open discussion of change is a recognized tool in reducing the resistance to change.[3]

An informative and simple framework adopted from the Integrated Strategic Change (ISC) model[4] can be used to facilitate the discussion of resistance to change and the logical need for the change. This article examines how the ISC model can be used to help reduce resistance to change.

Strategic and Organization Change

The ISC model suggests that change efforts can be classified into one of four categories based on the level of strategic and organization change required. The categories are a product of whether the strategy (the intended method for extracting economic rent from the market)[5] and the organization (how the company organizes its resources and uses mechanisms such as organization structure, controls, or culture to promote communication and coordination) change a little or a lot. Table 1 illustrates the possible outcomes of this 2×2 interaction.

Table 1: The Integrated Strategic Change Model

Change to Strategy

Low

High

Change to
Organization

High

Strategic AdaptationProposed Kmart Sears

Re-orientationEgghead

Low

ConvergenceWal-Mart

Strategic RevisionKFC

(Adapted from Worley, Hitchin, & Ross, 1996:77)

Convergence: The combination of a low level change in strategy and a low level change in organization results in a convergence level of organizational change. Convergence is the fine-tuning of the strategy and the organization to fit better with each other and the surrounding environment and to produce increased efficiency and effectiveness. Wal-Mart, the largest retailer in the U.S., with its continuing tweaking of strategy and operations, is an example of a convergence type of strategic change.

Strategy Adaptation: This cell represents the situation in which the organizational leaders decide to make major changes in the organization as the result of small changes in the organization’s strategy. The early announcements of Kmart’s purchase of Sears suggest that the intent is to continue to present the Sears and Kmart names to the public while changing the organization behind the scenes and saving $500 million. Successful completion of this strategic change would be a strong example of a strategic adaptation.

Re-orientation: Re-orientation occurs when the strategy and the organization both change dramatically. Organizations find it necessary to make such dramatic changes when the environment shifts suddenly, significantly, and in a non-linear fashion. Emery and Trist have described this type of environmental shift as “when the very ground is in motion.”[6] The environmental shift may necessitate strategic changes, such as switching from one market to another, changing customer channels, and/or moving from being a niche differentiator to becoming a broad market low cost leader. These strategic re-orientations require wholesale changes at the organizational level, such as restructuring, moving from a functional to a divisional structure, removing and/or adding layers of management, and exiting/entering new markets.

The Egghead chain of computer stores decided in 1998 that the pressure from Wal-Mart and Circuit City was too much, closed its 250 retail stores, and re-oriented from being a brick-and-mortar retailer to being an e-commerce retailer. Egghead.com lost $155 million in 1999, filed for Chapter 11 in August 2001, and was purchased and became part of Amazon.com in 2001.[7]

Strategy Revision: The fourth and last category of organizational change in the ISC model is strategy revision. Strategy revision occurs when the business strategy changes significantly to meet a change in the environment or the interpretation of the environment. However, the strategic changes in a strategy revision do not require a significant organizational change, usually because of a flexible structure or slack resources in the existing structure. An example is KFC’s shifting its strategy to stress the freshness of its menu instead of the convenience, a move that did not necessarily require its restaurants to change operations. Strategy revision may create some significant changes in a small part of the firm, i.e., the advertising department. However, the rest of the organization continues to operate in a “business as usual” mentality.

Effect of Change on Logical Consistency

Change produces resistance because change disrupts the momentum and inertia of organizational processes. Change disrupts organizational patterns and may create realignment of sources of organizational power.[8] An additional source of resistance to change is a lack of understanding by those affected by the change as to why change is necessary and what it will accomplish.[9]

Whether or not the levels of strategic and organization change are perceived as logically consistent with each other also affects the extent to which organizational members reject or accept and buy into change. Logical consistency among concepts means that the concepts share a logical framework or background, i.e., one idea intuitively makes sense given another. The idea that someone may need an umbrella because it looks like rain is logically consistent. The idea that one may need an elephant because it looks like rain is logically inconsistent.

In Table 1, the categories for convergence and reorientation appear to be logically consistent. “A small strategic change creates a need for small organization change” may be the working definition of fine-tuning or tweaking a strategy. This category may not be organizational change as much as it is organizational maintenance. Reorientation is also logically consistent in that it is reasonable to expect that if the need for strategic change is significant, then the organization also needs to change significantly to maintain external and internal fit.[10] It is easier to get leaders to move, and resistance to change is reduced, when leaders believe they are on a burning platform and need to change or perish.[11]

Conversely, strategic adaptation and strategic reorientation may create higher levels of resistance to change because it is more difficult to view these strategies as logically consistent. Strategic adaptation requires extensive and high levels of organization change predicated on a relatively small change in the business strategy. The question that may need to be answered is, “Why do we need to change everything for such a small strategy shift?”

The answer is that organization capacity is not completely scalable, and change often occurs in non-linear fashion. An analogy may be that a married couple may enjoy their two-seater sports car until they have a child and then need to move to a four-seat sedan, even though theirs is a family of three. Another car change will not be required until two more children are added. An organizational parallel is that a company may be able to grow from one location to four locations without large-scale expenditures for overhead or coordinating mechanisms. However, the organization requires different overhead or infrastructure when it grows larger than four locations because old systems will be operating beyond their limits. An initial phone system may support eight telephones. A business starting with four telephones may be able to add telephones five through eight with little or no need to change the telephone structure, thereby reducing resistance and limiting expenditure. However, the addition of the ninth telephone may require replacing the entire telephone system with one having a 32-telephone capability. Similar resulting “lumpiness”[12] may necessitate making major changes in the organization when the change in strategy is relatively minor.

Photo: Fabrizio Turco

A parallel issue is also raised when the level of strategic change is high and the requisite level of organization change is low in a strategic revision. Such circumstances may also be the product of the lumpiness of organizational assets, or may be because of slack or currently untapped resources. Major strategic changes also may produce minor organization changes if the strategy changes are changes in perceptions, such as marketing-driven strategic changes. KFC’s shifting of its strategy to stress the freshness of its menu was possible because the resources to do so already existed in the organization. The strategy modified how the market perceived KFC, not what KFC did.

Resistance to change has different effects depending on whether the change is a matter of strategic adaptation or strategic revision. Resistance to change in strategic adaptation is potentially more of an issue because such a change requires a high level of organization change and is also more dependent on organization members to change. Conversely, resistance to change in strategic revision is less of an issue because such change requires a low level of organization change, and most organization members do not need to change.

Application

The aforementioned concepts are important to organization leaders because they support the idea that the way in which leaders frame change is important. Leaders can use the ISC framework and the concept of logical consistency to guide how change is communicated to the workforce and reduce resistance to change by doing so intelligently.

Convergence: An important question for leaders involved in convergence levels of organization change is whether to label the effort as change or to label it as “fine-tuning” and allow logical consistency to carry the day. The story to organization members becomes “The strategy did not change in a major way. Some changes need to be made to fine-tune the organization-strategy fit, and it is no big deal.”

Re-orientation: Organization leaders promoting reorientation need to stress the burning platform nature of the change. The opportunity also exists to leverage the logical consistency in another direction—to sell organization members on the idea that all concepts are up for reconsideration and renegotiation because the very ground is in motion. Prior resource allocation and political alliances are thus no longer in effect in the brave new world.

Strategic Adaptation: The most challenging opportunity for leading change may be for the organization leader promoting strategic adaptation. The organization change requirements are higher than the strategic change requirements, no burning platform is evident, and the amount of organization change appears illogical given the current situation. The managers may want to consider reframing the time horizons defining the change effort and the reasons that it is needed so that the longer-term environmental change is more evident. In other words, create the appearance of a burning platform. One example of this type of reframing is found in the relationship of the U.S. automakers and their unions in the 1980s. The automakers often found it easier to get buy-in from the unions and workers by discussing the growing power of international automobile producers over the prior decade, instead of within the shorter term.

Another alternative is to view the organization changes as setting the stage for more strategic changes than just the immediate effort. The burning platform is coming in the future is the theme of this idea. Boeing used the idea that it was setting the stage for a longer-term strategy when it explained the major shifts in how it organized its commercial business following the 9/11 attacks.

Strategic Revision: Challenges also exist for the organization leader heading up strategic revision efforts. The low level of organization efforts needed to support the larger scale changes to organization strategy may at first seem like a “no problem” problem. However, the logical inconsistency may create the feeling within the organization that the strategy change was simply “smoke and mirrors.” The result of deprecating the strategy may be that the organization changes that are needed may not be made because their importance is not evident. Organization leaders may need to reframe the strategy as more of a reorientation by enlisting the assistance of peripheral organization members in insuring that the necessary changes are made and the new strategic message is effectively delivered to clients.

Summary

Organization leaders can improve the likelihood of the success of change efforts by examining the logical consistency of strategic and organization changes required. An important point to note in closing is that the organization leader must understand the nature of the change and the leader’s role in presenting such change to support effective change implementation. A strategic leader may need to reframe the change effort so that it appears logically consistent.

About the Author(s)

Graziadio Business Review, is an online journal that delivers relevant business information and analysis for business, government, and non-profit managers. From accounting and finance to ethics and work/life balance, the Graziadio Business Review extends current business debates in new directions that you can use to advance your business and professional career.